Archive for January 31st, 2011

I just finished reading John Quiggin’s Zombie Economics, from Princeton UP. I had read most of the book months ago, and then a number of things got in the way of finishing it. However, it’s an easy book to come back to because it is methodical in debunking the some major conceits of neoclassical economics and the associated policies. One of the reasons I was interested in this book in the first place is that Quiggin posted the chapters serially on his blog and received comment ahead of publication. The level of rigor and care is quite evident in the text- it goes without saying that this publishing strategy is an effective one.

There are five chapters, addressing what Quiggin sees as the five most dubious accepted truths in the mainstream: the Great Moderation; Efficient Markets Hypothesis; use of DSGE models; trickle-down economics; and Privatization. Each chapter has five sections- birth, life, death, reanimation, and after the zombies. This setup allows Quiggin to carefully explain the history of each idea, how each has been applied, and how to move beyond.

I most enjoyed the DSGE section, in which he takes on the predominant practice of a microeconomics-based approach to macroeconomics. Here, he probes the technical and philosophical assumptions of these accepted models, and shows how they were bound to failure in predicting the current crisis. In presenting alternatives, he shows how one can look to Keynes and seek models without a “coherent dynamic equilibrium concept.” Such models would embrace animal spirits, and eschew false attempts to simplify human behavior in pursuit of elegance. Quiggin also urges a return to Minsky in order to understand bubbles.

I had highest hopes for Chapter 4, which covered trickle-down economics. Here, I thought, Quiggin would unmask the class-based roots of the crisis, demonstrated by inequality and stagnant wages. He does talk about inequality a lot, and how political power has led to more of it and also the outsized growth of the financial sector (something like the Hacker-Pierson argument, but not articulated as such). He even debunks the notions that inequality leads to growth and that social mobility compensates for it. However, when discussing the real harm of inequality, he ends up falling back on the loss of autonomy it produces. I don’t want to downplay the importance of autonomy, but for some reason, the following paragraph annoyed me:

The points are clearest in relation to employment. Early on, Marmot debunks the Marxian notion of exploitation (capitalists taking surplus value from workers) and says that what matters in Marx is alienation. It’s the fact that the boss is a boss, and not the fact that capitalists are extracting profit, that makes the employment relationship so troublesome.

I’m not sure how Quiggin misses the fact that alienation and exploitation are tightly linked. Further, when one sees the divergence of wage growth and productivity growth in the last three decades, and the need for debt-based consumption it fueled, I’m not sure how one could conclude that exploitation and class don’t matter. I am beating a dead drum on this concept, I know, but it really seems to me that overlooking these factors is the critical conceit of economics, as most in the field assume that labor must simply take what is given to it. Thus, I’ve urged repeatedly for more worker-owned enterprises as a pathway to a new economy. A shift along these lines would address both alienation and exploitation, which is good because I’m not sure how one could address one without the other.

By eliding over exploitation, Quiggin naturally steers his policy pitch against trickle-down- the emphasis shifts to the outsized wages at the top (CEO pay), not to the stagnant ones at the bottom. The related (and wrong-headed) key political questions follow naturally, and emphasize tax reform. All told, in shooting down one zombie here, Quiggin seems to have reanimated one of the most important ones, that class is irrelevant.

Quiggin ends with a nice touch in his conclusion- he turns the financially-oriented notion of risk on its head by pointing out the great risks our society assumes by having inadequate safety nets and a privatization-first mindset. Put simply, “a social democratic response to the crisis must begin by reasserting the crucial role of the state in risk management…collective risk management through the welfare state helps to stabilize the aggregate economy.” Indeed, the tussle over the question has been the most marked in politics and economics in the last 30 years. We may need to settle it once and for all before moving on to the deeper structural tensions of our economy. Pointing out that opponent ideas are essentially “zombies” is a critical contribution here.

Finally, I enjoy Quiggin’s three simple propositions for economics, which he says should focus, “more on realism, less on rigor; more on equity, less on efficiency; and more on humility, less on hubris.” Though I think Quiggin may have missed something crucial in this book, he gets 95% of it right, and does so in a way that’s accessible for non-economists. His book is a great contribution to our understanding of the failure of economics, and a good start to putting the discipline on the right path.

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